Exemption withdrawal based on immaterial inspection defects and irrelevant considerations was quashed for mala fides and statutory non-compliance.

Exemption from entertainment tax could not be withdrawn on the basis of an immaterial discrepancy in an inspection report where the competent authority's permission to construct the cinema hall, granted on 8.1.2001, was undisputed. Rule 3 of the U.P. Cinematograph Rules, 1951 did not require the particular site inspection relied upon, so alleged overwriting or backdating in the inspection papers did not undermine the exemption already granted and availed. The Court also noted that the withdrawal proceedings were initiated on a selective and irrelevant premise, with the operative permission order ignored, and treated this as indicative of mala fides. The withdrawal order and recovery certificate were quashed with consequential relief.

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Issues: (i) Whether the withdrawal of exemption and consequential recovery of entertainment tax were sustainable when the impugned action was founded on alleged overwriting and backdating of the inspection report, and whether such alleged defect was material in the facts of the case; (ii) Whether the proceedings initiating withdrawal of exemption were vitiated by mala fides and by reliance on an irrelevant premise, having regard to Rule 3 of the U.P. Cinematograph Rules, 1951.

Issue (i): Whether the withdrawal of exemption and consequential recovery of entertainment tax were sustainable when the impugned action was founded on alleged overwriting and backdating of the inspection report, and whether such alleged defect was material in the facts of the case.

Analysis: The relevant permission to construct the cinema hall had been granted on 8.1.2001 by the competent authority, and the record showed no dispute regarding the date of that permission. Rule 3 of the U.P. Cinematograph Rules, 1951 did not mandate the site inspection on which the impugned action was built, and the alleged overwriting in the inspection papers did not explain how permission had been issued on 8.1.2001 if the decisive order itself stood on record. The defect relied upon was therefore not material to the validity of the exemption already granted and availed.

Conclusion: The withdrawal of exemption and consequential recovery were not sustainable on the alleged discrepancy in the inspection papers.

Issue (ii): Whether the proceedings initiating withdrawal of exemption were vitiated by mala fides and by reliance on an irrelevant premise, having regard to Rule 3 of the U.P. Cinematograph Rules, 1951.

Analysis: The action was triggered by a report procured on the initiative of the Entertainment Tax without adequate basis, while omitting to examine the operative permission order signed on 8.1.2001. The Court found that the proceedings were prompted by mala fide considerations and that the supposed discrepancy in the inspection report was treated as decisive despite being irrelevant to the statutory scheme. The notice, the forensic reference, and the withdrawal order proceeded on an unfair and selective use of material.

Conclusion: The proceedings were vitiated by mala fides and by reliance on an irrelevant consideration.

Final Conclusion: The writ petition succeeded, the withdrawal order and recovery certificate were quashed, and the petitioner was granted consequential relief including costs.

Ratio Decidendi: Where exemption has been granted by the competent authority under the applicable statutory scheme, it cannot be withdrawn on the basis of an immaterial defect in supporting papers, particularly when the operative permission order is undisputed and the action is shown to be tainted by mala fides or irrelevant considerations.

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